Dow vs. S&P, Who's King of the Market?

When the Dow reaches record lows or highs, investors take notice, yet it only represents 30 companies. Is the index outdated? And, is the S&P 500 a better barometer of the economy? CNBC's Jane Wells takes a look.

The Dow is the King of Indices. When it makes history, we listen. But should another wear the crown?

Most news reports about the stock market always lead with the Dow Jones Industrial Average. The NASDAQ usually follows, with the S&P 500 bringing up the rear. The S&P is like the Rodney Dangerfield of market measurements.

It's time to right this wrong.

"Most money managers benchmark themselves against the S&P," said Robert Kaplan, the former vice chairman at Goldman Sachs and currently a professor at the Harvard Business School.

Even though the Dow comprises 30 of the biggest, most well-established companies in the U.S., the S&P 500 is often considered a better barometer, not only because of the breadth and depth of companies represented, but because many of those firms represent the future.

"If you want to buy emerging companies, you're much more likely to find them among the S&P than you are among the Dow," Kaplan said, even though "you might get some laggards in the S&P. You're not likely to get those in the Dow."

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The combined market cap of the Dow 30 companies is about $4.25 trillion, while the combined value of the 500 companies in the S&P more than triples that figure to nearly $14 trillion. Most exchange traded funds are tied to the S&P or sectors within it, not the Dow. So why do we hold onto this fascination with the DJIA?

"We've had it since the 1890s, it's historic," said Kaplan. He added that these 30 companies remain a pretty good measurement of the health of the U.S. economy. "I don't think they reflect the economy as well as the top 500, but, listen, any time you pick the top 30 data points, it gives you a pretty good indication."